Close-up of Ben Franklin's eye on one hundred dollar bill
Outside Business Journal

Opinion: Pay Equity Starts with Pay Transparency

You probably don't know how much your colleagues make. Here's why you should.

Close-up of Ben Franklin's eye on one hundred dollar bill
Kiran Herbert

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Would you share your salary publicly? The idea makes most of us squirm—but what if that’s exactly what we need to end unjust pay gaps?

This year has brought no shortage of equity commitments from the outdoor industry, yet pay transparency—the practice of making employee compensation figures visible, either internally or externally—is essentially nonexistent. A growing body of research suggests that the disconnect is a missed opportunity: Pay transparency is one of the most effective (and easiest) things a business can do to alleviate racial and gender pay discrepancies.

Across industries, white women typically make 81 cents for every dollar earned by white men, and the gap widens for women of color. And women, like black candidates, are viewed as less likable when they do negotiate. Salary secrecy also keeps entry-level positions fixed at lower rates, exacerbating the wealth gap (and encouraging folks to jump companies when they want a significant raise). When incomes are fixed and public, it’s much harder to maintain an overinflated pay gap.

Still, keeping mum about salaries is standard practice, allowing companies to maintain the upper hand while negotiating. If a talented staffer can be hired at an unfairly low rate, most businesses consider that a win. Salary secrecy also keeps with a culture that values individualism, and sees the sharing of personal finances as taboo. But secrecy can backfire.

“If people feel that pay is inequitable, bad things happen,” said Todd Zenger, professor of strategy and strategic leadership at the University of Utah’s David Eccles School of Business. “They leave organizations, they lobby for changes in pay, and their effort [as employees] declines.”

Nevertheless, companies that employ pay transparency remain outliers. Whole Foods and the software company Buffer are two notable examples of businesses that have adopted the process and are more egalitarian for it. Buffer made the move toward salary transparency in 2013, posting all employee salaries publicly online (including that of CEO Joel Gascoigne: $280,500).

Although transparency has allowed Buffer to eliminate the gender pay gap between people in comparable roles, men on average still make about $14,000 more than women due to overrepresentation in upper-level positions. Salary tracking and accountability, however, ensure the company is constantly improving.

“Basically, we need to hire more women in senior-level roles,” said Jenny Terry, Buffer’s finance and compliance manager. Like recruiting more people of color, it’s a pipeline issue the company is actively working to address.

Perhaps most surprising is the fact that within a month of making salaries public, job applications to Buffer doubled. “Pay transparency has been a huge driver for our inbound recruiting,” said Terry, noting that the practice removes guesswork for the applicant and bias for the hiring manager. “It’s been a really positive thing for company culture.”

A 2013 study out of the University of California, Berkeley, found that employees who knew their colleagues’ salaries put in significantly more effort than those with no knowledge of peer earnings. Terry said, “Salary transparency breeds trust, laying the foundation for teamwork and collaboration.” The flip side: Knowing your coworker makes more money can also breed resentment.

Companies can avoid any sense of bitterness by benchmarking base salaries against a data source and building a formula to account for things like seniority, cost of living, or other qualifications (no negotiating allowed). And remember that including pay philosophy—making it clear how salaries are calculated and what career progression looks like—is crucial, too.

“Unless companies can publicly justify why someone should be paid more, they’re usually better off flattening pay,” said Zenger. Another option is to keep individual salary data private, while still publicizing the salary formula used, ranges of pay, and pertinent stats, such as women’s pay relative to men’s.

“Maintaining a sense of fairness in an organization is absolutely vital, and pay transparency plays into that,” said Zenger. The practice won’t eliminate all inequity in our industry, but it will help close the pay gap—that’s a pretty good start.